Out-Bound Investments Grow in Thailand Resort Residences Markets

As buyers look to resort residences, the trend we have seen since the beginning of this year is the growth in outbound investments to provincial cities and key resort markets. As many have already heavily invested in Bangkok and options are becoming exhausted, it is only reasonable to look to other markets.

The first resort market that comes to mind for Thai investors has always been Hua Hin, but demand has been primarily for own-use. For some buyers, purchasing a resort home and using it less than 30 days a year while having to pay common area fees that can be comparable to the cost of staying in a hotel make many people reconsider their purchase and whether it is actually worth it.

I have noticed an increasing demand from buyers for holiday-home investment products whereby they receive an ongoing rental yield and can also enjoy complimentary usage of their unit for a certain period of time during the year. This type of investment product meets the market needs for people who want to own a resort home as well as generate long-term yield and capital appreciation.

Developments that aim to offer this type of investment package should plan right from the beginning of the development process. The key aspect apart from the location and product is who is managing the rental programme.

The concept that has grown in popularity is hotel-managed residences or branded resort residences. An association with a widely recognised hotel chain ensures a consistently high standard of property management. Although maintenance costs are comparatively higher, owners will enjoy freedom from hassles and enhanced capital appreciation, as well as a high level of service and extensive facilities. Investors can be assured that the rental programme can be effectively run to maximise yields given the chain's extensive marketing network and sales platform.

There are several hotel-branded residences on the market designed as pure investments, such as Amari Residences Phuket and Banyan Tree Residences. These projects offer what investors need - a fully managed turnkey investment where the management and property rental are fully taken care of by the hotel chain on the owners' behalf.

Another popular marketing technique used in today's market is to offer a guaranteed yield for the buyers, which ranges from 5-6% in the current market. But most developers will offer this for the first two or three years and thereafter switch to a rental-pool system where the revenues from all units are pooled together and divided proportionately among individual owners.

Most quality projects in prime destinations that are well located and managed by a reputable hotel chain achieve similar or even higher yields through the rental-pool system compared with the guaranteed yields.

For developments that were not planned as a hotel or to be managed by a hotel chain, a rental programme on a best-effort basis run by the developer itself or subcontracted to rental-management companies is usually in place. The developer or the appointed manager will look after the property management and unit rentals on a short- or long-term basis, ranging from weeks to months or one year, but each manager will have different standards and rental terms and conditions.

With tourist arrivals at a record high and poised for further growth, particularly in Phuket, the resort-home market for investment is expected to have a positive spin-off effect.

Today, more resort-home projects are targeting the investor market with several choices of investment package as mentioned earlier.

Maximising yields from holiday rentals is not as easily done as said. Having a rental programme in place alone does not always make the project a good investment. Investors must carefully assess the opportunities against the criteria outlined above.